The Korea Development Institute (KDI) diagnosed that the South Korean economy is remaining at a low level, similar to last month. While semiconductor exports and facility investment are performing well, the analysis indicates that the sluggish construction sector and the impact of tariff increases in the United States have caused a slowdown in manufacturing and exports, hindering economic recovery.
In its report on economic trends for July released on the 10th, KDI assessed the South Korean economy, stating that "the sluggish construction sector continues, and external conditions are worsening, keeping the economy at a similar low level to the previous month."
KDI has continuously warned of economic sluggishness since the beginning of the year. Last month, it assessed that "the overall economy is in a weak state" and has maintained the same diagnosis this month.
In May, total industrial production decreased by 0.8% compared to the previous month. Construction production fell by 20.8% compared to the same month last year, continuing the severe slump from the previous month (-21.1%). Despite the growth in semiconductors (18.1%), mining and manufacturing production experienced declines in automobiles (-3.2%), metal processing (-4.9%), and pharmaceuticals (-10.7%), resulting in an overall increase rate of just 0.2%, significantly narrowing the growth span.
Production in the service sector showed solid trends in financial and insurance services (3.6%) and health and welfare (7.1%), but overall growth remained at 1.0% due to sluggishness in wholesale and retail (-1.6%) and business facility management (-3.0%). The average manufacturing utilization rate fell to 71.7%, down from 73.8% the previous month, while the inventory rate rose to 104.4%.
In May, retail sales decreased by 0.2% compared to the same month last year, continuing a downward trend for two consecutive months. Passenger cars increased by 13.4% due to the influence of the special consumption tax reduction, but other items, including furniture (-10.8%), cosmetics (-8.5%), and home appliances (-6.1%), performed poorly. Overall service consumption showed low growth due to declines in lodging and restaurant services (-1.0%) and educational services (-0.9%).
In contrast, the consumer sentiment index in June rose significantly to 108.7, up from 101.8 the previous month. KDI viewed the signs of easing high-interest rates and the effects of supplementary budget preparation as positive factors for consumer recovery.
In May, facility investment increased by 7.5% compared to the same month last year, showing high growth for two consecutive months. Equipment for semiconductor manufacturing (12.9%) and precision instruments (9.0%) showed good trends, while other transport equipment surged by 49.8%. However, investment in general industrial machinery (-3.3%) and other equipment (-13.8%) decreased, resulting in an overall machine investment increase of just 0.6%.
In June, imports of machinery also rose by 8.4%, primarily centered around semiconductor manufacturing equipment, but KDI noted that "considering the usual uncertainties and worsening corporate sentiment, sluggishness in machinery investments outside of semiconductors may persist for the time being."
In June, exports increased by 4.3% compared to the same month last year due to a temporary surge in ship exports. However, excluding ICT and ships, the average daily export figures have decreased for three consecutive months. KDI analyzed that "high tariffs on automobiles have limited U.S. exports to a 1.9% increase, while exports to China declined by 0.4% due to sluggish semiconductors." Imports grew by 3.3%, centered on semiconductor equipment, and the trade surplus recorded $9.08 billion.
In May, the number of employed people increased by 245,000, but on a seasonally adjusted basis, it decreased by 44,000 compared to the previous month. Employment in construction (-106,000) and manufacturing (-67,000) sectors fell compared to last year, and employment in the lodging and food services sector also turned to decline. The employment rate was 62.9%, and the economic activity participation rate was 64.7%, slightly down from the previous month.
In June, consumer prices rose by 2.2%, slightly widening from 1.9% the previous month. However, core inflation maintained an increase rate of 2.0%. Expected inflation showed a declining trend, indicating downward pressure on prices.
In June, the Korea Composite Stock Price Index (KOSPI) surged by 13.9%, while the won-to-dollar exchange rate dropped by 2.2%. Continued sluggishness in domestic demand led to an increase in the delinquency rate of domestic banks in April, primarily focused on the corporate sector.